Bankruptcy Advice: The 7 most common FAQs answered

Bankruptcy is just one of a number of options available if you’re facing mounting financial difficulties. Getting the right bankruptcy advice, in what are often trying circumstances, will enable you to make the best possible decision for your financial future and achieve the best possible outcome.

To assist in making the right decision here are answers to seven of the most frequently asked questions about bankruptcy…

 1. How do you become bankrupt?

If you are unable to pay your debts, you may voluntarily file for bankruptcy by filing a Debtor’s Petition with the Official Receiver from the Australian Financial Security Authority (“AFSA“). This is a Commonwealth Government agency.

If you file for bankruptcy, you may appoint the Official Trustee from AFSA or a private trustee (such as those provided by Pearce & Heers).

A creditor can also apply to court to make you bankrupt if they have a judgment against you for over $5,000 and if you have committed an act of bankruptcy. Anyone taking this course of action may elect to have the court appoint a private trustee of the bankrupt estate or arrange for the court to appoint an official trustee.

2. How do I know if I should file for bankruptcy?

If you are in financial difficulty, you should consider whether to become bankrupt or to pursue one of the other options available (detailed in question 7) to deal with your circumstances.

We have prepared a simple, easy to use, checklist to assist you assess whether you should consider bankruptcy.

3. What are the major consequences of bankruptcy?

If you become bankrupt:

  • You are bankrupt for three years from the date you file a document with AFSA known as a Statement of Affairs. The Statement of Affairs questions relating to various matters including your assets and liabilities;
  • You are released from most of your debts;
  • An independent party (the bankruptcy trustee) is appointed to arrange for the sale of your assets that are able to be sold in bankruptcy;
  • The bankruptcy trustee will investigate whether any legal claims are available to be pursued, such as claims for undervalued transfers of assets and they will pursue claims that are commercially viable in order to recover funds for the bankrupt estate;
  • The funds realised by the bankruptcy trustee are distributed, after payment of the bankruptcy trustee’s costs and expenses, towards payment of debts which you owe.

4. What assets can and can’t be sold by a bankruptcy trustee?

The property that will be sold or realised in bankruptcy may include your:

  • Interest in any real property;
  • Shares;
  • Cash at bank, although the bankruptcy trustee will leave you with some funds to meet living expenses;
  • Motor vehicles over a certain statutory value;
  • Tools of trade over a certain statutory value;
  • Any interest you have in a deceased estate that arises either prior to or during bankruptcy.

Assets of a bankrupt that cannot be sold or realised include (subject to certain exceptions):

  • Superannuation;
  • Household furniture and belongings;
  • Other excluded assets, including tools of trade and motor vehicles valued at less than the statutory limit.

5. Are there any further consequences of bankruptcy?

Some further common consequences of bankruptcy are:

  • There will be a permanent record of your bankruptcy on the National Personal Insolvency Index, which is a register of people who have become bankrupt or been a party to other types of insolvency proceedings (maintained by AFSA);
  • There will be a record of your bankruptcy on Equifax which may be removed seven years after your discharge from bankruptcy;
  • You must prepare and lodge a Statement of Affairs with AFSA at the time of filing a Debtor’s Petition for bankruptcy; if you are made bankrupt by the court, this must be provided to your trustee within 14 days of being notified of your bankruptcy;
  • You cannot act as a company director or trade a business other than under your own name;
  • You are not entitled to incur credit over a certain statutory limit without advising the person you are dealing with that you’re bankrupt;
  • You are required to pay income contributions to your trustee if your net after-tax income exceeds a certain statutory limit (as detailed in question 6); and
  • You must deliver your passport to your trustee and not travel overseas without your trustee’s written consent.

6. When do I have to pay a proportion of my income to my trustee?

If you earn above a certain level of after-tax income (an amount set each six months by the government – currently $55,837 if you have no dependants), you are required to make contributions to your trustee.

The level of income you can earn before having to make contributions to your trustee increases with the number of dependents you have.

If you earn over the set level of after-tax income, you must pay fifty cents in every after-tax dollar earned over this amount to your trustee.

You may use our Income Contribution Calculator to estimate the income contributions you are liable for.

7. Are there any options other than bankruptcy?

There are various options other than bankruptcy available to you if you cannot pay your debts. These include:

It is extremely important that if you are suffering financial difficulties that you obtain advice from a qualified professional (such as those at Pearce & Heers) about the options available to you, including filing for bankruptcy.

What to do if you’re in financial difficulty now…

If you’re facing financial difficulty now, why not get in touch with us. We can answer your questions in a no-cost confidential discussion.


We’re happy to answer any questions you may have, so please don’t hesitate to call us and schedule a consultation.



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Brisbane Qld 4000


Phone: 07 3221 0055
Fax: 07 3221 8885

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Brisbane Qld 4001



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